If the primary mortgage holders have died, the fate of the property they owned can be uncertain. This worries many heirs, and children who are dealing with their parent's death may fear they will lose their parents' house. When in doubt, children should consult an attorney that specializes in death, estates created after death and how debts are dealt with. In many cases, children may be able to assume a mortgage after a parent has died.
Right of Assumption
The right of assumption refers to the ability of the heir or beneficiary of the estate to take over the mortgage and keep making payments according to the previous mortgage terms. This allows beneficiaries to keep the house but also makes them liable for the debt obligation. If the estate has not been complicated by trusts that parents use to store and protect property (which typically allow the assumption of a mortgage or at least retention of the property anyway), then legal precedent dictates that the beneficiary has the right to assume the mortgage.
Mortgage Contract
In some cases, lenders will put a particular due on sale clause in the mortgage contract. If there is a section in the contract that requires the estate to fully pay off the mortgage if the primary holders have died, there is nothing beneficiaries can do to assume the mortgage. The contract their parents made with the lender supersedes the legal precedent, and the mortgage must be paid in full. This is a common move for lenders to make, so the estate will examine the mortgage contract to see what rules apply.
Lender Perspective
Lenders create due on sale clauses and similar wording in order to protect themselves. If they can collect all the money due on the mortgage at the death of the holder, they can use that money as they see fit, making more loans and potentially gaining higher interest rates and greater profit. But if the mortgage is assumed, the money owed is still locked into the payment schedule and is far less flexible from the lender's point of view. As a result, lenders try to ensure they are paid for the total mortgage, even if the contract does not require it.
Keeping the House
If mortgage assumption is not an option, beneficiaries may still be able to keep the house while paying off the mortgage. The lender does not require that the estate sells the house in order to pay mortgage debt. If parents had enough funds in accounts or had other assets that could be sold to raise money, then the estate can pay off the mortgage and transfer ownership of the house to the heirs.
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